CBI plea to Bank as euro hits low

Business leaders have renewed calls on the Bank of England to signal that interest rates have peaked after a survey of Britain's manufacturing sector showed widespread business pessimism amid falling orders and squeezed margins.

The Confederation of British Industry's quarterly poll of nearly 1000 manufacturers showed pessimists outnumbered optimists by nine percentage points. Business confidence has now been in negative territory for three surveys in a row.

It also showed confidence in export prospects still falling, though at a slower rate, and orders tumbling further. However, manufacturers expect order books to get fatter over the next four months.

The CBI call came as the euro slumped to yet another record low. The beleagurued single currency dropped below 83 US cents for the first time as the world's leading finance ministers and central bankers did nothing to shore up the wilting currency. A large sell order from Dutch bank ING sent the euro careering below the previous low of 83.24 set last week, tumbling as low as 82.90.

Nick Reilly, head of the CBI's economic affairs committee, said: 'The relentless squeeze on margins is hitting jobs and investment intentions as firms try to keep their heads above water. There is a continuing unhealthy erosion of our manufacturing infrastructure and the Bank of England should recognise an interest rate rise at this stage would be very damaging.

'Firms need a signal that interest rates have peaked and any further moves will be downwards.'

But City economists said that despite the doom and gloom from the CBI, the balance of evidence was signalling that manufacturing was slowly on the mend.

Geoff Dicks, chief UK economist at Royal Bank of Scotland, said: 'This survey is less negative than the last one in July. Everything tells us that the worst is past for manufacturers and there's no scope for any easing of monetary conditions.'

Lehman Brothers' Michael Hume said: 'I think there's a chance that the fuel crisis had an effect on this survey. But it's still consistent with other evidence of moderate growth rates in manufacturing.'

The detail of today's report showed output falling slightly, but at a slower rate than previous surveys. The CBI said lack of demand was the factor most commonly cited as likely to limit output, but shortage of skilled labour was becoming an increasingly important issue.

The pound was unmoved by the report, but was still down nearly a cent on the day at $1.4390.